Page 13 - FSUOGM Week 41 2019

FSUOGM POLICY FSUOGM
Russia proposes new APG tax
RUSSIA
The levy would help pay for new tax breaks proposed at the Priobskoye field.
RUSSIA is scrambling to find a way of paying for the latest tax breaks proposed by its state oil majors.
Rosneft has called for RUB46bn ($716mn) in annual tax breaks at the northern section of the Priobskoye oilfield, one of Russia’s biggest pro- ducers situated in the Western Siberia’s prolific Khanty-Mansiysk region. Gazprom Neft, which operates the field’s southern part, has similarly asked for a tax reduction of RUB17bn per year.
The producers claim these incentives are necessary because of the difficulties in recover- ing Priobskoye’s oil. The field first entered pro- duction in the 1980s and its reservoirs are now mature and contain high quantities of water, complicating extraction. Rosneft has estimated that with a smaller tax burden, it could recover an additional 70mn tonnes (513mn barrels) of oil from Priobskoye over the next ten years.
The finance ministry is now weighing up options for covering the budget deficit these tax breaks will create. One proposal would see the size of the reductions linked to the price of oil, sources told Kommersant on October 14. When oil prices dip below $45 per barrel, for example, the companies would receive only half of the breaks they have requested.
To cover the remaining cost, the ministry has suggested introducing a nationwide tax on
production of associated petroleum gas (APG) – gas that is released as a by-product of extraction at oilfields. Russia last year produced 87bn cubic metres of APG, which at the proposed tax rate of RUB385 per 1,000 cubic metres, would have raised up to RUB33.5bn, covering more than half of the tax breaks to Gazprom Neft and Rosneft.
The two state producers would be hit hard- est by this levy, as together they accounted for 54 bcm of APG output in 2018. But the charge would also affect other leading oil compa- nies such as Lukoil and Surgutneftegas, which extracted 11 bm and 9 bcm of APG respectively that year.
The tax on APG could be problematic for Russia’s drive to clamp down on the flaring of gas. Russia is currently the world’s biggest flarer, and has come under increasing international pressure to improve. In 2007, at a time when the country was flaring more than a third of the APG it produced, the government set a national tar- get to utilise 95% of the by-product gas. It is yet to meet this goal, with utilisation reaching only 89% last year.
Russia has introduced fines for excessive and unnecessary flaring of gas, but critics say the measures do not go far enough. A tax on APG production could encourage producers to burn even more gas. ™
Week 41 16•October•2019 w w w . N E W S B A S E . c o m P13